FSS to Focus on IPO 'Inflated Demand Forecasts'... Pre-announcement of This Year's Inspection Plan

[Asia Economy Reporter Ji Yeon-jin] Financial authorities will review the appropriateness of institutional investors inflating purchase volumes during public offering demand forecasting.

The Financial Supervisory Service (FSS) announced on the 3rd the key inspection items for financial investment companies, including this matter, ahead of the full-scale inspections planned for this year. This is to give financial investment companies an opportunity to identify and resolve issues through self-inspection in advance.

First, the appropriateness of demand forecasting and institutional investor allocation tasks by IPO securities firms will be examined, and inspections of vulnerable core tasks at securities-related institutions and fund affiliates will be strengthened. Additionally, potential risks such as fund asset concentration and deterioration will be reviewed by examining the risk management and internal controls of asset management companies. In particular, the investor protection status of investment advisory firms with weak profitability or numerous complaints will also be inspected.

Regarding redemption suspension private equity funds, following inspections and sanctions focused on problematic private equity fund operators and sellers such as Lime and Optimus, this year inspections will be conducted sequentially on asset management companies and fund sellers that cause significant social issues or have potential legal violations.

The incorporation and compliance of securities firms with the Financial Consumer Protection Act’s internal regulations, as well as the exercise of newly established financial consumer rights such as subscription withdrawal rights, illegal contract termination rights, and data inspection request rights, will also be reviewed. At securities firms, the registration status of individual professional investors and compliance with investor protection measures related to private equity funds by asset management companies will be checked to strengthen investor protection systems.

Furthermore, in securities firms’ wrap account sales, whether there are any unsound sales practices and operational risk factors such as inclusion of illiquid or maturity-mismatched assets will be inspected. Regarding overseas stock brokerage operations, the transaction process, IT system establishment status, and investor protection will also be examined. In particular, handling of fractional share brokerage and overseas stock consolidation and split will be a focus of inspection.

For ETN issuing securities firms, the fulfillment of liquidity supply obligations and the appropriateness of guidance on potential investor losses when the premium/discount rate widens will be closely examined, and potential risks in new business areas such as unlisted stock brokerage will also be reviewed.

Unhealthy asset management practices of funds with continuously increasing operational scale, such as overseas alternative investment funds, will also be subject to inspection, and unhealthy management and sales practices by general partners (GPs) and compliance with institutional private equity fund-related regulatory changes will be reviewed.

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